Open banking as a means to enhance social commerce security
By Leon Muis, Chief Business Officer, Yolt Technology Services (YTS)
The rise of social commerce has transformed the online shopping space. Data reveals that (35%) of consumers have already made a purchase through social media. Among younger customers, its popularity is even higher, with more than half (51%) of millennials likely to spend money in social media shops. While more established platforms like Facebook and Instagram garner the most purchases, Tiktok’s partnership with Shopify is allowing merchants access to younger Gen-Z audiences.
The ease of purchasing on social commerce sites has pulled in an eager clientele: more than three-quarters (76%) of consumers have made impulse purchases via social channels and 82% like the convenience it offers. A fifth of those already purchasing through social platforms do so weekly, spending an average of £71 a month.
It should be of little surprise that, with this in mind, retailers are rethinking their social media models, moving from a showcase for products to direct sales within apps and platforms. The immediacy of purchase is of critical importance in social commerce. 71% of consumers would rather complete the sale on social than be redirected across to a retail site and payment page to checkout. Removing barriers for consumers and easing the purchase is essential for online retailers who are fighting to maintain the attention of the customers in an aggressively competitive marketplace.
Understanding the risks of social commerce
Despite the wide use of social commerce, the practice is not without its risks. One of the biggest concerns amongst consumers is the security of their sensitive details. Wary users could be justified in thinking that a faster buying process may open the door to data breaches or personal information leaks. Digital fraud is a major concern for many as it showed an ugly increase during the pandemic: 1.1 billion fraud attacks took place in the first half of 2020, double the volume compared to the last half of 2019.
Counterfeit goods and false advertising is another substantial concern for social commerce shoppers. According to the Anti-Counterfeiting Group (ACG), 31% of shoppers fell victim to fake products online in 2019, with 23% of these counterfeit goods being purchased through social media.
Review sites, comment sections and other forms of social proof can be helpful tools but, ultimately, consumers must approach purchasing on social marketplaces with a critical eye. People can shop on social platforms relatively risk-free if they use their common sense and a healthy level of scepticism. However, there are many ways that even the most astute consumer can fall prey to fraudsters, incurring cost to themselves or cost to the retailer.
The impacts of fraud
The immediate impact of fraudulent transactions can have a grave impact on business and consumers alike. Costs can run high with compensation to the victim(s), shipping, insurance costs, transaction fees, as well as chargeback fees. Replacement of ‘lost’ inventory and the manual review of suspicious transactions only add to the time and financial costs put on business by fraud cases.
Merchants can end up spending 3-5% of their revenue combatting fraud. These costs are hard enough to bear in good times but they can become crippling during a pandemic when profit margins are tight and businesses, especially SMEs, have been hit hard.
Fraud though can have longer term impacts than revenue loss. Customer confidence in both the business and the social media platform may be shaken. With little faith in the protection of sensitive financial details, even the most avid supporter of a company will look elsewhere. At a higher level, reputational damage may discourage potential investors, especially when huge headline-grabbing cyberattack cases reach news outlets.
Fraud crises weaken all aspects of social media purchases reliant on good faith and trust. Commercial relationships between social media platforms and retailers will be heavily strained if consumer faith is weakened in both to an unhealthy extent.
How open banking can boost the payment security of social commerce?
Open banking payments (Payment Initiation Services) help to resolve the risks and challenges of social commerce, since they can provide a considerable boost to payment security.
This method allows social commerce payments to be verified by the customer directly through their bank’s own security measures. Customers can purchase products on social media platforms without entering their sensitive financial information.
This means that there is an additional layer of security for social media shoppers. The payment process is verified through the same organisation they entrust their savings to, creating a faith in the security of their social media transactions. The ease of payment for social media is now married with security verification, presenting no barriers to the customer journey and ensuring a fast conversion to payment for many.
Verification is also a valuable tool for combatting fraud and helping business growth. Potential acts of fraud are identified quickly and snubbed out, saving retailer costs on insurance and chargebacks. A reliable, preventative transaction security system will reassure customers, allowing them to shop without the threat of increased exposure to potential fraud.
Social commerce is growing and will continue to be a vital asset for retailers. It is important to remember that social media can be a double-edged sword. If customers have a bad experience with purchase safety, they’re likely to vocalise it, attempt to discourage others from using the service and will never return.
Give them a great payment experience, however, and they will most likely talk about it with their peers within their social media networks – increasing sales as a result.